Listen: The BEST Financial Strategy During the COVID-19 Pandemic

"There are things that can be learned during a crisis. There's also things that you're going to be in the middle of ego man. I wish I knew going in. But there's definitely something I'm going to internalize and then I'm GonNa make sure in the future. I don't get myself in this situation again now. What I think is so exciting Brian. Whether this is like a fortunate or unfortunate thing we've been through crises before whether it be the DOT com bubble or nine eleven or the great recession or fill in the blank. We've been here before. And one of the great things you said is after a crisis you can learn a lot from there you get to kind of do an after action review. We thought well maybe there are some things that we've learned from prior previous experience that we can share that might be viable as we approach this or even the next crisis. So let's see if there's some planning opportunities and things that you can figure out how this works with your financial situation so you not only go into this the next time stronger better and more prepared. You will be in a much better place to tackle shorts so number one. Give it gas and drive through it. I think I think we we. We talked about this. Appreciate you guys. Love recirculating this pitcher that Daniel created and this is supposed to me because he did some out. He found a picture of the hat that I had when party leader work in the drive through. I mean if you drove through the hardy's McDonough Georgia more than likely you saw me working there and I'll never forget that it was at heart disease that you know days of thunder crews Robert Hall and others it was. It was big hit movie and that we were the big sponsor restaurant and in that movie which I re watched probably in the last twelve months. I'll never forget Cole trickle gets in a situation where he has his horrible car accident and he's just not the same driver anymore. So Robert Duvall his character tells Tom Cruise. Hey when you see when you see the smoke when you see the accident coming ahead of you just drive through it you gotta hit the gas and draw through an encounter and if you're making an analogy we're in that situation right now. There's definitely smoke. Were concerned were fearful. You're trying to figure out. You have an investment plan. You have a dollar cost averaging plan. You have monthly 401k contributions. And you're like do I. Do I panic and pause and stop and stand still because you guys I hear you say standstill? But what does that mean for future investments? We're saying no if you're twenty years if you're in your twenties you're in your thirties during your forties even fifties. If you've got five years before you retire. All those systematic savings plans still need to be rocking and rolling so keep buying equity investments so buying risk gone asset. It's sounds like what I hear you say is that if you have planned appropriately and plan correctly when you see volatility when you see a downturn or when you see discomfort scary things that's not the time to be adjusting course changing strategy making moves trying to figure your way out of it. All of that planning and preparation should have probably happened before you got into the mess. It's just like in your race car driving analogy. It's the reason they have on the suits and helmets. They don't try to put the helmet on while they're getting into the end of the crash. That would be counterproductive. I think it's also we will look back in five to six years in the people who made money on. This is going to be a lot of people but man look out lucky. That person is Sean Angelie. They man it must be great that they had this opportunity to do it. I I. It's just like people from the two thousand. Eighteen non collapsed were real estate. I have clients that bought rental property back then that are sitting quite nicely now. Wow how did they knew to do that? Did they have some crystal ball? Some magic tea leaves no guys you just have to look at. The current financial situation see where the opportunities are and be willing to maximize the opportunity and a lot of people. They think about this when they look back and they go. How did they know about the financial opportunity guys? The opportunity is big enough to drive a truck through. This is not something that requires you to be a genius when you see that valuations of companies like price earnings ratios of the stock market and the S. and P. Five hundred is getting down to historic lows. Gets kind of easy to see? We're probably getting closer to a bottom than we are to the to in the losses that we've fallen down from so keep buying those risk assets that we get all the time as people say to us. Oh well okay I hear you say key by but don't know where the bottom is. Why don't I just wait until it gets to the bottom and then I'll start buying well? That's great if you wouldn't mind sharing with us with the bottom is going to be then we'll all just make tons of money. What actually happens. We never know exactly when that knife is going to hit the bottom. We never actually know when it's going to bottom out so while right now today may not be the lowest point that the market's going to get to. It's still a great buying opportunity. You don't want to get it just right if you can get close over the long term. You're going to be successful. And that's why we we're GonNa talk later about the importance of creating a systematic savings plan. And why that way you can take the emotional part out. But here's let's move on a number two we talk about. This is a tool you can. Use is called harvesting losses. This is something that I won't and your Batman Utility Belt. I want you to have this tool imbo. What's the power of this? Yes this is actually one of the things I would say. Probably at at the firm abound wealth management. We've been doing the most in the past week or two. This is probably been the most active that we've been doing. So let's go to like a webster's dictionary definition. What IS TAX LOSS? Harvesting will tax loss. Harvesting is the practice of selling a security that has a loss by realizing the loss investors may offset taxes on gains and or income. In the what this doesn't say is I'm going to sell security at a loss and just go to cash sit there. Will you go to panic when you tax harvest? You're actually recognizing a loss without changing your overall investment plan investment strategy. Yeah what I like about. It is is that look. We know. Markets are down like we have a v-shaped recovery and there's even a perfect illustration. Let's take two people that start at ten thousand dollars. Let's show the differences between this sure. So let's say that we have to investors F. T. E. D. Daniels due to investors Tony Entries and they both have ten thousand dollars at. They're going to invest just in a broadly diversified index fund. Let's assume that for both of them. The value of the investment drops by ten percent and they both had ten thousand dollars invested and then it goes down ten percent down to nine thousand. Well Tony he says you know what I listened the money guy show so what I'm going to do is I'm going to sell that. Index Fund. Nine thousand dollars and I'm going to immediately go vest. Invest that Nine Thousand Index Fund. It's similar same type of asset class same type of investment opportunity but it's not identical is materially different enough that. I'm not just buying more of the same thing. Have a little bit of a different. So maybe one international index to another that way you avoid the wash sale rules no wash. That happens so theresa on the other hand she does nothing she just lets her ten thousand dollars nine thousand well then the investments. Both of them come back up. Let's say that the investment for both of them goes back up to ten thousand dollars so they both have an investment portfolio of ten thousand. What was actually happened is Tony. He sold at nine thousand and reinvested. He actually has a thousand dollar loss that he capitalize on or that he harvested that he can use to offset any capital gain income. This year it can even potentially use it as offset up to three thousand dollars of ordinary income and if he has so much losses at not only the all of his capital gains and not only does he offset three thousand hundred ordinary income. He can actually carry those losses into future years and use them in future years. What I like about it this is. This is a strategy. That don't overcomplicate this. All this is allow. You don't put your money on the sideline you just walk in the paper of loss that way serves as a tax benefit. Meaning that you might actually get a refund of some money when you file your taxes in April. The other thing it does is. We know you're in a lot of mutual funds and other things issue out a lot of investment income. If you walk in these losses elise allows you to have an offset to that income so once again lowering the tax bill with really out changing anything in your risk profile. Not Changing. Much your behavior of how you're structuring. Your investments is utilizing the tool to save as much as you can off taxes so this is a great thing we talk about all the time. This is one of the things that we use when we are in some of the volatile times. It's a tool we use as we're perpetrating. Re-balancing clients are getting portfolios. Back into the right. Mix to take advantage of some of the volatility. Tax Laws Harvesting. Just like you said. It is a great tool in the Batman tool bell that you ought to think about"

The Money Guy Show

The BEST Financial Strategy During the COVID-19 Pandemic

Automatic TRANSCRIPT

There are things that can be learned during a crisis. There's also things that you're going to be in the middle of ego man. I wish I knew going in. But there's definitely something I'm going to internalize and then I'm GonNa make sure in the future. I don't get myself in this situation again now. What I think is so exciting Brian. Whether this is like a fortunate or unfortunate thing we've been through crises before whether it be the DOT com bubble or nine eleven or the great recession or fill in the blank. We've been here before. And one of the great things you said is after a crisis you can learn a lot from there you get to kind of do an after action review. We thought well maybe there are some things that we've learned from prior previous experience that we can share that might be viable as we approach this or even the next crisis. So let's see if there's some planning opportunities and things that you can figure out how this works with your financial situation so you not only go into this the next time stronger better and more prepared. You will be in a much better place to tackle shorts so number one. Give it gas and drive through it. I think I think we we. We talked about this. Appreciate you guys. Love recirculating this pitcher that Daniel created and this is supposed to me because he did some out. He found a picture of the hat that I had when party leader work in the drive through. I mean if you drove through the hardy's McDonough Georgia more than likely you saw me working there and I'll never forget that it was at heart disease that you know days of thunder crews Robert Hall and others it was. It was big hit movie and that we were the big sponsor restaurant and in that movie which I re watched probably in the last twelve months. I'll never forget Cole trickle gets in a situation where he has his horrible car accident and he's just not the same driver anymore. So Robert Duvall his character tells Tom Cruise. Hey when you see when you see the smoke when you see the accident coming ahead of you just drive through it you gotta hit the gas and draw through an encounter and if you're making an analogy we're in that situation right now. There's definitely smoke. Were concerned were fearful. You're trying to figure out. You have an investment plan. You have a dollar cost averaging plan. You have monthly 401k contributions. And you're like do I. Do I panic and pause and stop and stand still because you guys I hear you say standstill? But what does that mean for future investments? We're saying no if you're twenty years if you're in your twenties you're in your thirties during your forties even fifties. If you've got five years before you retire. All those systematic savings plans still need to be rocking and rolling so keep buying equity investments so buying risk gone asset. It's sounds like what I hear you say is that if you have planned appropriately and plan correctly when you see volatility when you see a downturn or when you see discomfort scary things that's not the time to be adjusting course changing strategy making moves trying to figure your way out of it. All of that planning and preparation should have probably happened before you got into the mess. It's just like in your race car driving analogy. It's the reason they have on the suits and helmets. They don't try to put the helmet on while they're getting into the end of the crash. That would be counterproductive. I think it's also we will look back in five to six years in the people who made money on. This is going to be a lot of people but man look out lucky. That person is Sean Angelie. They man it must be great that they had this opportunity to do it. I I. It's just like people from the two thousand. Eighteen non collapsed were real estate. I have clients that bought rental property back then that are sitting quite nicely now. Wow how did they knew to do that? Did they have some crystal ball? Some magic tea leaves no guys you just have to look at. The current financial situation see where the opportunities are and be willing to maximize the opportunity and a lot of people. They think about this when they look back and they go. How did they know about the financial opportunity guys? The opportunity is big enough to drive a truck through. This is not something that requires you to be a genius when you see that valuations of companies like price earnings ratios of the stock market and the S. and P. Five hundred is getting down to historic lows. Gets kind of easy to see? We're probably getting closer to a bottom than we are to the to in the losses that we've fallen down from so keep buying those risk assets that we get all the time as people say to us. Oh well okay I hear you say key by but don't know where the bottom is. Why don't I just wait until it gets to the bottom and then I'll start buying well? That's great if you wouldn't mind sharing with us with the bottom is going to be then we'll all just make tons of money. What actually happens. We never know exactly when that knife is going to hit the bottom. We never actually know when it's going to bottom out so while right now today may not be the lowest point that the market's going to get to. It's still a great buying opportunity. You don't want to get it just right if you can get close over the long term. You're going to be successful. And that's why we we're GonNa talk later about the importance of creating a systematic savings plan. And why that way you can take the emotional part out. But here's let's move on a number two we talk about. This is a tool you can. Use is called harvesting losses. This is something that I won't and your Batman Utility Belt. I want you to have this tool imbo. What's the power of this? Yes this is actually one of the things I would say. Probably at at the firm abound wealth management. We've been doing the most in the past week or two. This is probably been the most active that we've been doing. So let's go to like a webster's dictionary definition. What IS TAX LOSS? Harvesting will tax loss. Harvesting is the practice of selling a security that has a loss by realizing the loss investors may offset taxes on gains and or income. In the what this doesn't say is I'm going to sell security at a loss and just go to cash sit there. Will you go to panic when you tax harvest? You're actually recognizing a loss without changing your overall investment plan investment strategy. Yeah what I like about. It is is that look. We know. Markets are down like we have a v-shaped recovery and there's even a perfect illustration. Let's take two people that start at ten thousand dollars. Let's show the differences between this sure. So let's say that we have to investors F. T. E. D. Daniels due to investors Tony Entries and they both have ten thousand dollars at. They're going to invest just in a broadly diversified index fund. Let's assume that for both of them. The value of the investment drops by ten percent and they both had ten thousand dollars invested and then it goes down ten percent down to nine thousand. Well Tony he says you know what I listened the money guy show so what I'm going to do is I'm going to sell that. Index Fund. Nine thousand dollars and I'm going to immediately go vest. Invest that Nine Thousand Index Fund. It's similar same type of asset class same type of investment opportunity but it's not identical is materially different enough that. I'm not just buying more of the same thing. Have a little bit of a different. So maybe one international index to another that way you avoid the wash sale rules no wash. That happens so theresa on the other hand she does nothing she just lets her ten thousand dollars nine thousand well then the investments. Both of them come back up. Let's say that the investment for both of them goes back up to ten thousand dollars so they both have an investment portfolio of ten thousand. What was actually happened is Tony. He sold at nine thousand and reinvested. He actually has a thousand dollar loss that he capitalize on or that he harvested that he can use to offset any capital gain income. This year it can even potentially use it as offset up to three thousand dollars of ordinary income and if he has so much losses at not only the all of his capital gains and not only does he offset three thousand hundred ordinary income. He can actually carry those losses into future years and use them in future years. What I like about it this is. This is a strategy. That don't overcomplicate this. All this is allow. You don't put your money on the sideline you just walk in the paper of loss that way serves as a tax benefit. Meaning that you might actually get a refund of some money when you file your taxes in April. The other thing it does is. We know you're in a lot of mutual funds and other things issue out a lot of investment income. If you walk in these losses elise allows you to have an offset to that income so once again lowering the tax bill with really out changing anything in your risk profile. Not Changing. Much your behavior of how you're structuring. Your investments is utilizing the tool to save as much as you can off taxes so this is a great thing we talk about all the time. This is one of the things that we use when we are in some of the volatile times. It's a tool we use as we're perpetrating. Re-balancing clients are getting portfolios. Back into the right. Mix to take advantage of some of the volatility. Tax Laws Harvesting. Just like you said. It is a great tool in the Batman tool bell that you ought to think about

Coming up next

The BEST Financial Strategy During the COVID-19 Pandemic

The Money Guy Show
2 months ago

TSP126 - The Undefinable Spirit: Dr. Claudia Six returns to talk about relationships and sex during COVID-19.